Some benifits and costs of cost benifits analysis

Preliminary draft
Forthcoming 2021
Daedalus

Some Benefits and Costs of Cost-Benefit Analysis
Cass R. Sunstein
Abstract
The American administrative state has become a cost-benefit state, at least in the sense that
prevailing executive orders require agencies to proceed only if the benefits justify the costs.
Some people celebrate this development; others abhor it. For defenders of the cost-benefit state,
the antonym of their ideal is, alternately, regulation based on dogmas, intuitions, pure
expressivism, political preferences, or interest-group power. Seen most sympathetically, the
focus on costs and benefits is a neo-Benthamite effort to attend to the real-world consequences of
regulations, and it casts a pragmatic, skeptical light on modern objections to the administrative
state, invoking public-choice theory and the supposed self-serving decisions of unelected
bureaucrats. The focus on costs and benefits is also a valuable effort to go beyond coarse
arguments, from both the right and the left, that tend to ask this unhelpful question: “Which side
are you on?” In the future, however, there will be much better ways, which we might consider
neo-Millian, to identify those consequences: (1) by relying less on unreliable ex ante projections
and more on actual evaluations; (2) by focusing directly on welfare and not relying on imperfect
proxies; and (3) by attending closely to distributional considerations – on who is helped and who
is hurt.

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From 1981 to the present, the American administrative state has become, to a
significant extent, a cost-benefit state.1 Under prevailing executive orders, agencies
must calculate the costs and benefits of proposed and final regulations, and to the

extent permitted by law, may proceed only if the benefits justify the costs. These requirements
have spurred, and helped make possible, life-saving regulations in a variety of domains,

including clean air, motor vehicle safety, clean water, homeland security, public health, climate
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change, and occupational safety. At the same time, they have served as a check on, and an
obstacle to, regulations that would cost a great deal and achieve very little.
Of course it is true that political considerations matter, even in a cost-benefit state. In
Congress, cost-benefit analysis often takes back seat, if it makes it into the room at all. In the
executive branch, political convictions, dogmas, or perceived electoral considerations may trump
the outcome of cost-benefit analysis, or make it an ex post justification or an afterthought, rather
than a driver of decisions. Nonetheless, the analysis of costs and benefits, offered by technical
specialists, often has a real impact on regulatory choices, pressing administrators in the direction
of greater or less stringency, exposing new options, or offering a bright green “GO!” or a
forbidding red “STOP”!
In terms of rigor, coverage, and accuracy, a great deal remains to be done. The fact that
cost-benefit requirements do not apply to the “independent” agencies, such as the Federal
Communications Commission, the Securities and Exchange Commission, and the Nuclear
Regulatory Commission, is a continuing problem. Sometimes the numbers are based on
guesswork, and there is continuing concern about whether before-the-fact estimates (of, for
example, safety and health regulations) are reliable, or whether they are, on some occasions, a
stab in the dark. Many people have argued for rigorous, ongoing evaluations, in which
administrators test whether (for example) a regulation designed to increase food safety, or to
protect against occupational injuries, is actually having its intended effect, and whether it is
doing better or worse than expected. They are right to make that argument.
Despite the continuing challenges, the emergence of the cost-benefit state is a remarkable
achievement. It means that the role of dogmas, intuitions, and interest groups has diminished and
that within the executive branch, at least, regulators have often focused insistently on the human

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consequences of what they are proposing to do. To a significant extent, the cost-benefit state has
been a check on “expressivism,” in which public officials, on either the left or the right, act to
express abstract values, without exploring whether particular initiatives would actually have
good or bad consequences. To the extent that the consequences of regulations are genuinely good
(because, for example, they prevent hundreds or thousands of deaths), the rise of the cost-benefit
state casts a new light on some prominent and high-minded critiques of modern administration -for example, that it is a product of unelected bureaucrats, a tribute to the power of well-organized
private groups, a reflection of monied interests, an unacceptable abdication of legislative
authority, or a product of government’s efforts to expand its own power.
To be sure, each of these critiques must be met on its own terms. But if (for example) a
motor vehicle safety regulation from the Department of Transportation, authorized by Congress,
is preventing three hundred deaths annually and costing just $40 million, it would not seem that
there is good reason for complaint, and the same is true if the Environmental Protection Agency
is finding ways to reduce greenhouse gases significantly and at modest cost. And indeed, many
regulations, under both Republican and Democratic administrations, have delivered massive net
benefits (understood as benefits minus costs). It is not unusual to find that in a given year, the
monetized benefits of regulations (including the benefits in terms of preventing illnesses,
accidents, and premature deaths) exceed the monetized costs by many billions of dollars. (The
Trump Administration was an outlier; because it issued so few regulations, the annual costs of
what it did were very low, and so were the annual benefits.)
Under favorable conditions, the use of cost-benefit analysis can provide safeguards
against decisions based on feelings, hopes, presumptions, perceived political pressures, appealing
but evidence-free compromises, broad aspirations, guesses, or the wishes of the strongest people

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in the room. But the administrative state should do better still. It needs to focus directly on
human welfare. It should see cost-benefit analysis as a mere proxy for welfare, and an imperfect
one to boot. It needs to investigate welfare itself, and to explore what that idea is best understood

to mean. It needs as well to focus on distributional considerations – on who is helped and who is
hurt.
To see the underlying problems, consider a realistic if highly stylized example. Suppose
that the Environmental Protection Agency (EPA) is considering a new regulation designed to
reduce levels of particulate matter in the ambient air. Suppose that the total annual cost of the
regulation would be $900 million. Suppose that the monetized mortality benefits would be higher
than that – because, say, the regulation would prevent one hundred deaths, each valued at $10
million. (This is a hypothetical number; as of 2021, prominent federal agencies valued a
statistical life at about $11 million.) Suppose as well that if the EPA includes morbidity benefits
(in the form of nonfatal illnesses averted), the regulation would produce an additional $350
million in benefits, meaning that the monetized benefits ($1.35 billion) are significantly higher
than the monetized costs ($900 million). At first glance, the cost-benefit analysis suggests that
the regulation is an excellent idea, and that the EPA should go forward with it.
Now assume four additional facts. First, the mortality benefits of the regulation would be
enjoyed mostly by older people: those over the age of eighty. Second, the rule would have
significant disemployment effects, imposing a statistical risk of job loss on a large number of
people, and ultimately causing three thousand people to lose their jobs. Third, the EPA believes
that the overwhelming majority of those three thousand people would find other jobs, and
probably do so relatively soon, but it does not have a great deal of data on that question and it
cannot rule out the possibility of long-term job loss for many people. Fourth, both the mortality

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and morbidity benefits would be enjoyed disproportionately by low-income communities and by
people of color. In accordance with standard practice, the EPA does not include any of those
further facts in its cost-benefit analysis.
If the goal is to promote social welfare, it would be far too simple for the EPA to
conclude that, because the monetized benefits exceed the monetized costs, it should proceed with
the regulation. There are further questions. The first is whether and how to take into account, in

welfare terms, the relatively fewer additional life-years that the regulation will generate. In those
terms, is a rule that “saves” people over eighty to be deemed equivalent to one that “saves” an
equivalent number of people who are (say) under thirty? People disagree about how to answer
than question. At the very least, it can be said that many reasonable observers urge, on
Benthamite grounds, that the number of life-years matters.
The second question is easier to ask than to answer: What are the welfare consequences
of the $900 million expenditure? Suppose that, concretely, the admittedly high cost will be
spread across at least two hundred million people, who will be spending, on average, a little over
$4 annually for the regulation. What are the welfare consequences of that modest expenditure?
Might they be relatively small? (The answer is emphatically yes. Most people will lose
essentially no welfare from an annual $4 loss.)
A third question involves the disemployment effect. We know that in terms of subjective
welfare, it is extremely bad to lose one’s job.2 People who lose their jobs suffer a lot: Job loss
can severely harm one’s self-worth and experience of daily life. A sudden loss of income can
threaten housing and food security, often causing disruptions to family life and schooling. A loss
of a job also creates a nontrivial long-term loss in income.3 If you are out of work for a year, the
economic toll might be very high over a lifetime. We know that a long-term loss of employment

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has more severe adverse consequences than a short-term loss, but both are bad. Shouldn’t those
welfare effects be included?
A fourth question is the distributional impact. If the health benefits of regulation would
be enjoyed mostly by members of low-income groups, and particularly by people of color, might
that matter? We might think that even if the rule does not have significant net welfare benefits, or
even if it has some net welfare costs, it is nonetheless desirable, if and because it increases
equality. The interest in environmental justice focuses on the very real possibility that wealthy
people might be the disproportionate beneficiaries of polluting activity and that poor people
might bear most of the costs. (In the context of air pollution, that appears to be true.)

These considerations suggest that while monetized costs and benefits tell us a great deal,
they do not tell us everything that we need to know. On welfare grounds, a rule might not make
sense even if the monetized benefits are higher than the monetized costs, and a rule might make
sense even if the monetized costs are higher than the monetized benefits. In addition, we might
want to consider distributional effects. To be sure, a rule that costs $1 billion and that provides
benefits of $100 would not be a good idea even if the wealthy pay that $1 billion and poor people
receive that $100. But if a rule costs $1 billion and delivers $950 million in benefits, we might
want to go forward with it if the cost is diffused among a large number of wealthy people, and if
the benefit is enjoyed by (for example) coal miners whose lives are at stake.
Now suppose that the Department of Transportation is considering a regulation that
would require all new automobiles to come equipped with cameras, so as to improve rear
visibility and thus reduce the risk of backover crashes.4 Suppose that the total estimated annual
cost of the regulation is $1.2 billion (reflecting an average added cost of $50 per vehicle sold
over the relevant time period). Suppose that the regulation is expected to prevent sixty deaths

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annually, for monetized annual savings of $540 million, as well as a number of nonfatal injuries
and cases of property damage, for additional annual savings of $200 million. On the basis of
these numbers, the Department is inclined to believe that the benefits of the rules are
significantly lower than the costs.
At the same time, suppose that the Department is aware of four facts that it deems
relevant, but that it is not at all sure how to handle. First, a majority of the deaths that the
regulation would prevent would involve young children, between the ages of one and five.
Second, a majority of those deaths would occur as a result of the driving errors of their own
parents, who would therefore suffer unspeakable anguish. Third, the cost of the rule would be
diffused across a large population of new car purchasers, who would not much notice the pervehicle cost. Fourth, the cameras would improve people’s driving experience by making it much
easier for them to navigate the roads, even when it does not prevent crashes. (The Department
speculates that many consumers do not sufficiently appreciate this improvement when deciding

which cars to buy.) Is it so clear, in light of these four facts, that the agency should not proceed?
That is not a hard question. The answer is: No. That answer suggests the importance of
considering variables that are difficult or perhaps impossible to quantify. (How exactly to do that
is a hard question.)
In principle, cost-benefit analysis is best defended in Benthamite terms, as the most
administrable way of capturing the welfare effects of policies (including regulations). But if we
actually knew those effects, in terms of people’s actual welfare (suitably specified), and thus
could specify the actual consequences of policies for welfare (again, suitably specified), we
would not have to trouble ourselves with cost-benefit analysis. An initial problem is that costbenefit analysis depends on willingness to pay, and people might be willing to pay for goods that

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do not have substantial positive effects on their welfare (and might be unwilling to pay for goods
that would have substantial positive effects). Willingness to pay is based on a prediction, and at
least some of the time, people make mistakes in forecasting how various outcomes will affect
their lives (md make them feel). Call them welfare forecasting errors. You might think that if
you do not get a particular job, or if your favorite sport team loses a crucial game, or even if
someone you really like refuses to date you, you will be miserable for a good long time. But
chances are that you are wrong; you will recover much faster than you think. The basic point
applies to the administrative state and its choices. People might make welfare forecasts with
respect to calorie consumption or exposure to certain risks, and those forecasts might go wrong.
If administrators rely on welfare forecasts as reflected in willingness to pay, they might
incorporate and hence propagate errors.
A separate problem involves the incidence of costs and benefits, which can complicate
the analysis of welfare effects, even if we put “pure” distributional considerations to one side.
Suppose that a regulation would impose $400 million in costs on relatively wealthy people and
confer $300 million in benefits on relatively poor people. Even if the losers lose more than the
gainers gain in monetary terms, we cannot exclude the possibility that the losers will lose less
than the gainers gain in welfare terms.

An additional problem is that because willingness to pay depends on ability to pay, it can
be a poor measure of welfare effects. A very rich person might be willing to pay a lot (say,
$2000) for a good from which she would not get a lot of welfare. (After all, losing $2000 is a
trivial matter, if you are very rich.) A very poor person might be willing to pay only a little (say,
$20 and no more) for a good from which she would get a lot of welfare. (After all, losing $20 is
no trivial matter, if you are very poor.) These points do not mean that a very rich person should

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be prevented from paying that large amount for that good, or that a very poor person should be
forced to pay more than that small amount for that good. (People who like regulation often miss
the latter point in particular.) But they emphatically do mean that if a very poor person, or simply
a poor person, is willing to pay only a small amount to avoid a mortality risk, or to get some
benefit (say, an unlawfully present citizen seeking “deferred action” from the U.S. government),
that small amount is not a good measure of the welfare effects.
This point raises a number of questions about how to consider distributional impacts in
cost-benefit analysis. In principle, a uniform willingness-to-pay for (say) low-level mortality
risks makes no sense; it would require poor people more than they wish for reducing those risks.
If they do not suffer from some form of bounded rationality, and if they are making reasonable
tradeoffs, why should they be required to do that? One answer might be that they do, in fact,
have to pay 100 percent of the cost of what they receive. Poor people might end up paying only a
fraction of the cost of the air pollution benefits that they get. But is that actually true, rather than
a matter of hopeful speculation? We might want to give some kind of distributional weight to the
benefits of regulations, so that a regulation that helps poor people will be more desirable for that
reason. That might well be right on “prioritarian” grounds. But if poor people are also paying for
what they receive, the distributional impact might not be so wonderful.
The most general problem is that whenever agencies specify costs and benefits, the
resulting figures will inevitably have an ambiguous relationship with what they should care
about, which is welfare. To be sure, it is possible that some of the problems in the two cases I

have given could be significantly reduced with improved cost-benefit analysis. If children should
be valued differently from adults, and elderly people differently from younger, cost-benefit
analysis might be able to explain why and how. Perhaps parental anguish could be monetized as

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well. (Why, you might ask? It is a fair question. The answer is to figure out how to weigh both
sides of the ledger; without that, how can a regulator make a sensible decision?) The same might
well be true, and might more readily be true, of the increased ease of driving. But even the best
proxies remain proxies, and what matters most is welfare itself.

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***
n recent years, social scientists have become greatly interested in measuring welfare. One
of their techniques is to study “self-reported well-being,” meaning people’s answers to
survey questions about how satisfied they are with their lives. The promise of this

technique is that it might be able to offer a more direct, and more accurate, measure of welfare
than could possibly come from an account of costs and benefits (especially if that account
depends on willingness to pay).5 Suppose that we agree with economist Paul Dolan that welfare
largely consists of two things: 1) people’s feelings of pleasure (broadly conceived) and 2)
people’s feelings of purpose (also broadly conceived).6 People might enjoy watching sports on
television, but they might not gain much of a sense of purpose from that activity. Working for a
good cause (consider working for a nonprofit or for a government whose leaders you admire)
might not be a lot of fun, but it might produce a strong sense of purpose.
If pleasure and purpose matter, and if we want to measure them, we might be able to ask
people about those two variables. How much pleasure do people get from certain activities? How
much of a sense of purpose? Dolan has in fact asked such questions, with illuminating results.7

We are learning a great deal about what kinds of activities are pleasurable or not, and also about
what kinds of activities seem to give people a sense of purpose or meaning. In the abstract, what
we learn seems to tell us a lot about people’s welfare, and it might offer a more direct and

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accurate account than what emerges from an analysis of costs and benefits. The reason is that
measures of pleasure and purpose offer information about people’s actual experience of their
lives, rather than a projection as measured by money, and the former seems to be what most
matters.
With respect to subjective well-being, the most popular existing measures take two
forms. First, researchers try to assess people’s “evaluative” welfare by asking questions about
overall life satisfaction (or related concepts, such as happiness).8 With such measures, it is
possible to test the positive or negative effects of a number of life events such as marriage,
divorce, disability, and unemployment.9 Second, researchers try to assess people’s “experienced”
welfare, through measures of people’s assessments of particular activities (working, commuting,
being with friends, watching television).10
In fact, researchers have uncovered some systematic differences between people’s overall
evaluations and their assessments of their particular experiences.11 Marital status is more closely
correlated with experienced well-being than with evaluative well-being, though there is
conflicting evidence on this point.12 French people report significantly lower levels of
satisfaction in their lives than Americans, but the French appear to show equal or even higher
levels of experienced well-being.13 (Psychologist Daniel Kahneman has suggested a partial
explanation: in France, if you say you are happy, you are superficial; in the United States, if you
say you are unhappy, you are pathetic.) Health states are more closely correlated with
experienced well-being, though they also affect evaluative well-being.
How can the choice be made between the two measures?14 The emerging consensus is
that useful but different information is provided by each. On one view, questions about
experienced welfare focus people on their existing emotional states, and thus provide valuable

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information about those states. By contrast, questions about evaluative welfare encourage people
to think about their overall goals or aspirations. On this view, evaluative welfare “is more likely
to reflect people’s longer-term outlook about their lives as a whole.”15 If this is so, then the two
measures do capture different kinds of values, and both are important. But it is not clear that the
emerging consensus is correct, for a critical question remains: do people’s answers to questions
about evaluative well-being in fact reflect their broader aspirations, or do they represent an effort
to summarize experienced well-being (in which case the latter is the more accurate measure)?
True, the idea of “welfare” leaves a great deal of ambiguity, and if it is invoked for policy
purposes or by governments, any particular account is highly likely to end up in contested
terrain.16 As made clear by Dolan (not to mention Aristotle, John Stuart Mill, and Amartya Sen),
a neo-Benthamite measure, neo-hedonic and focused only on pleasure and pain, would be
inadequate; people’s lives should be meaningful as well as pleasant. But even if we adopt a
measure that goes beyond pleasure to measure a sense of purpose as well, we might be capturing
too little. We might be ignoring qualitative differences among goods and the general problem of
incommensurability.
We value some things purely or principally for use; consider hammers, forks, or money.
We value other things at least in part for their own sake; consider knowledge or friendship. But
that distinction captures only part of the picture. Intrinsically valued things produce a range of
diverse responses. Some bring about wonder and awe; consider a mountain or a work of art.
Toward some people, we feel respect; toward others, affection; toward others, love. (There are of
course qualitative differences among different kinds of love.) Some events produce gratitude;
others produce joy; others are thrilling; others produce a sense of wonder; others make us feel

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content; others bring about delight. Some things are valued if they meet certain standards, like a
musical or athletic performance, or perhaps a pun.
In this regard, Mill’s objections to Bentham are worth quoting at length:
Nor is it only the moral part of man’s nature, in the strict sense of the term–the desire of
perfection, or the feeling of an approving or of an accusing conscience–that he overlooks;
he but faintly recognizes, as a fact in human nature, the pursuit of any other ideal end for
its own sake. The sense of honour, and personal dignity–that feeling of personal
exaltation and degradation which acts independently of other people’s opinion, or even in
defiance of it; the love of beauty, the passion of the artist; the love of order, of congruity,
of consistency in all things, and conformity to their end; the love of power, not in the
limited form of power over other human beings, but abstract power, the power of making
our volitions effectual; the love of action, the thirst for movement and activity, a principle
scarcely of less influence in human life than its opposite, the love of ease. . . . Man, that
most complex being, is a very simple one in his eyes.17
These points suggest the importance of having a capacious conception of welfare, one
that is alert to the diverse array of goods that matter to people. Consistent with Mill’s plea, a
large survey by the economist Daniel Benjamin and coauthors tests people’s concern for a list of
factors that includes not only “measures widely used by economists (e.g., happiness and life
satisfaction),” but also “other items, such as goals and achievements, freedoms, engagement,
morality, self-expression, relationships, and the well-being of others.”18
The central and important (though not especially surprising) result, compatible with
Mill’s point, is that people do indeed care about those other items.19 The perhaps ironic
conclusion is that, if measures of reported well-being neglect those items, they will end up losing
important information that cost-benefit measures ought to be able to capture. A significant
advantage of the willingness-to-pay measure is that it should, in principle, take account of
everything that people care about, including those things that matter for Mill’s reasons. If people
value cell phones because they want to connect with their children, or if they want to save (rather
than spend) money so they can give it to impoverished children, or if they want to spend money

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on a vacation because of their love of nature, their concerns, however diverse in qualitative
terms, should be adequately captured by the willingness-to-pay criterion, however unitary.
That is a point for cost-benefit analysis. Notwithstanding its apparent crudeness, and
notwithstanding the simplicity of the monetary measure, it honors qualitatively diverse goods
that people care about for diverse reasons. In that way, it is not simple at all, and for that reason,
cost-benefit analysis has advantages over some measures of happiness or subjective welfare.
Nonetheless, that form of analysis cannot have priority over excellent or full measures of
welfare. What is required are measures that are sufficiently reflective of the diverse set of goods
that matter to people but that avoid the various problems, signaled above, of cost-benefit
analysis.

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***

ith respect to regulatory policy, the largest problem with invoking selfreported well-being is this: even if such surveys provide a great deal of
information, we cannot easily “map” any particular set of regulatory

consequences onto changes in welfare.
Although we are learning a great deal about what increases and what decreases welfare,
what we are learning is relatively coarse; it frequently involves the consequences of large life
events, such as marriage, divorce, and unemployment.20 We do not know nearly enough about
how to answer hard questions about the welfare effects of health, safety, and other regulations.
For example: (1) How much happier are people when the level of ozone in the ambient air is
decreased from seventy parts per billion to sixty parts per billion? (2) For the median person,
what is the welfare effect of having to spend $50 or $100 or $300 on a particular regulatory

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initiative, noting that the money could have been used for other purposes? (3) What are the
welfare effects of giving unlawful noncitizens in the United States “deferred action,” meaning
that they will not be deported, and will be authorized to work? (4) In terms of “welfare units,”
how should we think about a loss of a job, or a life-year? Should we use those units or some
other kind (monetary?) in conducting analyses on the basis of studies of self-reported wellbeing? If we use those units, what, exactly, is the relevant scale?
Return to the two problems with which I began. We have seen that in terms of welfare,
cost-benefit analysis, at least in its current form, may not adequately handle: 1) unusually large
or unusually small numbers of life-years saved; 2) adverse unemployment effects; 3) questions
about the welfare effects of small economic losses faced by large populations; 4) intense
emotions associated with certain outcomes, such as parental anguish (or fear); and 5) hedonic
benefits associated with increased ease and convenience. We have also seen that cost-benefit
analysis does not capture distributional impacts, and that they might greatly matter. As I have
suggested, improved forms of cost-benefit analysis might be able to reduce these problems (and
cost-benefit analysis can of course be complemented with other inquiries; we might want to
engage in that form of analysis and deal with distributional impacts separately). But ideally, we
would want to know about welfare itself. The problem is that measures of self-reported wellbeing are far too crude to enable us to do that.
No one should doubt that cost-benefit analysis itself presents serious challenges,
sometimes described under the rubric of “the knowledge problem”: agencies have to compile a
great deal of information to make sensible extrapolations. But to map regulatory outcomes onto
self-reported well-being, the challenges are far more severe. Does this conclusion mean that
today and in the near future, regulators should rest content with cost-benefit analysis, and put

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entirely to one side, as speculative and unreliable, whatever we might learn from directly
considering welfare? That would be too strong. Most important, disemployment effects deserve
serious consideration, not least because of the significant adverse welfare effects of losing one’s

job. It is also relevant to know whether a regulation would protect children, and hence provide a
large number of life-years, or instead (and this is a far more controversial question) protect older
people, and hence provide a relatively smaller number of life-years. The Department of
Transportation was correct to emphasize that its rear visibility would disproportionately protect
children.
It is also possible that a large cost, spread over a very large population, might turn out to
have relatively modest adverse effects on welfare. Agencies should consider this possibility,
especially in cases in which costs and benefits are otherwise fairly close. And if agencies would
(for example) help people who suffer from mental illness of one or another kind, the welfare gain
might be substantial, even if the benefits cannot be adequately captured in willingness-to-pay
figures. Distributional effects should also be considered; they matter.
Emphasizing the promise of research on subjective well-being, economist Raj Chetty
contends: “Further work is needed to determine whether and how subjective well-being metrics
can be used to reliably measure experienced utility, but they appear to offer at least some
qualitative information on ex post preferences than can help mitigate concerns about paternalism
in behavioral welfare economics.”21 Chetty’s conclusion is sound, but it could be much stronger.
Work on subjective well-being can serve not only to mitigate concerns about paternalism but, at
least on occasion, to inform analysis of the welfare effects of regulations (and policies in
general). At present, inquiries into subjective well-being are too coarse to provide a great deal of
help to administrators, and cost-benefit analysis is the best proxy they have for (much of) what

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matters. But it cannot possibly tell us everything that we need to know. In the fullness of time, it
will be supplemented or perhaps even superseded by a more direct focus on welfare.

******

Cass R. Sunstein, a Fellow of the American Academy since 1992, is the Robert Walmsley

University Professor at Harvard University (on leave of absence) and Senior Counselor and
Regulatory Policy Officer at the U.S. Department of Homeland Security in the Biden
Administartion (a position he assumed after this essay was essentially completed; nothing in this
essay should be taken to reflect an official position in any way). From 2009 to 2012, he served as
Administrator of the White House Office of Information and Regulatory Affairs. His recent
books include Law and Leviathan (with Adrian Vermeule, 2020), Conformity: The Power of
Social Influences (2019), The Cost-Benefit Revolution (2018), and #Republic: Divided
Democracy in the Age of Social Media (2017).

1

See Cass R. Sunstein, The Cost-Benefit Revolution (Cambridge, Mass.: The MIT Press, 2018).

2

See Jonathan Masur and Eric A. Posner, “Regulation, Unemployment, and Cost-Benefit
Analysis,” Virginia Law Review 98 (3) (2012): 580, who refer to a number of sources, including
Andrew E. Clark and Andrew J. Oswald, “Unhappiness and Unemployment,” The Economic
Journal 104 (424) (1994): 648, 650–651, finding that unemployment is associated with
significantly lower self-reported mental well-being; William T. Gallo, Elizabeth H. Bradley, Joel
A. Dubin, et al., “The Persistence of Depressive Symptoms in Older Workers Who Experience
Involuntary Job Loss: Results from the Health and Retirement Survey,” The Journal of
Gerontology, Series B: Psychological Sciences and Social Sciences 61 (4) (2006): S221, finding
that older, lower net-worth workers who lose their jobs are more likely to suffer from depression
than those who do not; and Knut Gerlach and Gesine Stephan, “A Paper on Unhappiness and
Unemployment in Germany,” Economics Letters 52 (3) (1996): 325, finding that unemployment
reduces life satisfaction beyond what would be expected from the loss of income.

3

See Masur and Posner, “Regulation, Unemployment, and Cost-Benefit Analysis,” 580.

4

For detailed discussion, see Cass R. Sunstein, “Rear Visibility and Some Unresolved Problems
for Economic Analysis,” Journal of Benefit-Cost Analysis 10 (3) (2019): 317. The example is
real but the numbers are definitely not. For the actual numbers, see “Federal Motor Vehicle
Safety Standards; Rear Visibility: A Rule by the National Highway Traffic Safety
Administration,” Federal Register 79 (66) (2014): 19178–19250.

5

Overviews can be found in Paul Dolan, Happiness by Design: Change What You Do, Not How
You Think (New York: Avery, 2014); Daniel Kahneman, Edward Diener, and Norbert Schwarz,
17
Electronic copy available at: />

eds., Well-Being: Foundations of Hedonic Psychology (New York: Russell Sage Foundation,
2002); and Daniel Gilbert, Stumbling on Happiness (New York: Knopf, 2006). I am bracketing
the question whether it is best to have a subjective or objective account of welfare; certainly
subjective welfare matters, even if we adopt an objective account. Valuable discussion can be
found in Matthew Adler, Well-Being and Fair Distribution: Beyond Cost-Benefit Analysis
(Oxford: Oxford University Press, 2011).
6

See Dolan, Happiness by Design.

7

See ibid.

8

See Richard Layard, Happiness: Lessons from New Science (New York: Penguin Books, 2006).

9

For discussion, see Cass R. Sunstein, “Illusory Losses,” The Journal of Legal Studies 37 (S2)
(2008): S157.

10

Arthur A. Stone and Christopher Mackie, eds., Subjective Well-Being: Measuring Happiness,
Suffering, and Other Dimensions of Experience (Washington, D.C.: National Academies Press,
2013).

11

Daniel Kahneman and Jason Riis, “Living, and Thinking about It: Two Perspectives on Life,”
in The Science of Well-Being, ed. Felicia A. Huppert, Nick Baylis, and Barry Keverne (Oxford:
Oxford University Press, 2005).

12

Stone and Mackie, Subjective Well-Being, 33.

13

See Kahneman and Riis, “Living, and Thinking about It.”

14

See ibid. Dolan, Happiness by Design, argues for the priority of experienced well-being. Stone
and Mackie conclude that multiple dimensions exist and are worth measuring, see Subjective
Well-Being, 32.

15

Stone and Mackie, Subjective Well-Being, 33. See also the discussion of “eudaimonic wellbeing,” drawn from ideas about human flourishing, ibid., 18.

16

Adler, Well-Being and Fair Distribution.

17

See John Stuart Mill, “Bentham,” in Utilitarianism and Other Essays, ed. Alan Ryan (New
York: Penguin Books, 1987), 132.

18

See Daniel Benjamin, Ori Heffetz, Miles S. Kimball, and Nichole Szembrot, “Beyond
Happiness and Satisfaction: Toward Well-Being Indices Based on Stated Preference,” American
Economic Review 104 (9) (2014): 2698.

19

Ibid.

20

For a valuable discussion, see W. Kip Viscusi, “The Benefits of Mortality Risk Reduction:
Happiness Surveys vs. the Value of a Statistical Life,” Duke Law Journal 62 (8) (2013): 1735.
18
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21

See Raj Chetty, “Behavioral Economics and Public Policy: A Pragmatic Perspective,”
American Economic Review 105 (5) (2015): 25.

19
Electronic copy available at: />